Good News is No News

News plays a crucial role in determining prices in financial markets. In an efficient market, current prices fully and correctly reflect all available information, such that only truly new information leads to price adjustment. This lecture shows that using high-frequency data makes it possible to accurately measure the reaction of stock prices on the New York stock exchange to new information related to the Federal funds target rate. An unexpected change in the target rate of 25 basis points leads to a return of slightly more than one percent within five minutes after the news announcement. Furthermore, the effects of positive and negative news on stock prices are fundamentally different. In case of positive news the stock market reaction depends upon the magnitude of the unexpected decrease of the interest rate; in case of negative news, stock prices only respond to the fact that an unexpected rate increase occurs.